In the normal world, when two people reach an agreement they’re both happy with, they call it a win-win.
In the Beltway world, when both sides reach a deal they’re unhappy with, they call it — a good deal.
Such is the case after Congress on New Year’s Day averted its feared “fiscal cliff” crisis`by passing a bill that raises tax on the wealthiest earners.
Because Congress took no action on the Social Security “payroll tax holiday,” the 2 percent break last year for workers got last year — worth about $1,000 to a worker making $50,000 — is no longer there. Thus, paychecks will shrink.
So taxes will now go up for everyone. That’s good if you are trying to balance the federal budget with greater revenues. But it’s bad if you don’t like tax increases.
Raising revenues to help cut the nation’s $16.4 trillion deficit is an ongoing goal of the Obama administration. The other method is spending cuts, which Congress failed to address this past week.
While Republicans would prefer the bulk of the deficit be reduced through spending cuts, Obama wants a fair balance of both, and we agree.
Time will tell, and soon, whether we can reach another deal before the looming debt ceiling crisis hits — sometime in the next two months. If Congress fails to raise the debt ceiling, the U.S. will be unable to pay its bills for budgets that have already been approved by Congress.
Failure to raise the debt ceiling and a U.S. default could set off a chain of economy-damaging events that could result in another worldwide recession, economists fear. It would be catastrophic compared to the fiscal cliff crisis that we recently averted.
Thus, it’s to everyone’s interest that a fair deal be reached that everyone can live with.
The tax deal approved earlier this week allowed Bush-era income tax cuts to expire for those making $400,000 a year and couples making $450,000 a year. Their tax rate went up from 35 percent to 39.6 percent.
On top of that, those who earn more than $200,000 a year for individuals or $250,000 for couples will see their investment taxes rise by 3.8 percent this year, thanks to a provision in the 2010 Obamacare law that kicks in.
Combined, both tax increases means households making between $500,000 and $1 million a year will pay an average of $14,812 more a year in taxes, while those making over $1 million would see an average tax increase of $170,341, according to the Tax Policy Center.
On the plus side for average wage-earners, Congress prevented the alternative minimum tax from kicking in, which could have resulted in tax increases ranging from hundreds to thousands of dollars a year.
In all, it was a good deal, even though Republicans and Democrats claimed they could have done better.
Looking ahead to the budget debt talks, compromise between Republicans and Democrats will be crucial. On one hand, left-leaning economists are suggesting the government spend more money to create jobs, improve housing demand and create more tax revenues.
On the other, financial experts on the right have argued that keeping taxes low for everyone, particularly the wealthy, will create a better climate ripe for creating jobs and housing demand. And to attack the deficit, massive spending cuts to social programs are needed, many argue.
The president has argued for a bit of both. That means not everyone will be happy, and some people will be angry. But for us to move forward with a better economy for everyone, a combination of more tax revenues and spending cuts are needed.
House and Senate leaders will need to assemble a similar looking coalition from both parties in order to gain a majority vote.
Both parties have made plenty of poor decisions that have gotten us to our $16.4 trillion debt that we now face. And both can, and must dig us out.
One side cannot do it alone. It’s past time that Congress got off the partisan bickering and posturing and recognized the implications of what a failure to lead means to all Americans. They must step up and reach a palatable compromise — painful as that might be to some inside the Beltway.